+ What the liquidator should look out for when selling intellectual property assets

 DETERMINING THE VALUE OF IP, ITS NATURE AND LIFECYLE

 

 

Determining the value of IP can only be done once it is identified.

 

Accordingly, an IP register isolating existing and potential IP assets of a business is fundamental. It is useful to not only list actual IP but also potential IP including unique designs and skills. The key in conducting this kind of IP audit is to consider every type of intangible item by the company.

 

Items in an IP register may include but be not limited to:

Business name and logo

Domain and business names

Research and development outcomes

Unique products, services, processes and applications

Unique design of products/packaging

Inventions and innovations

Drawings of tools or equipment used in manufacturing

3D moulds and 2D drawings

Designs of components

New business processes

Unreleased trademarks for new products, services and business names

Business reports

Trading secrets, know how and confidential information

Customer lists

Marketing strategies

Potential business relationships and ventures

Business proposals

List of company employees and their moral rights requirements

List of IP contracts

Deeds of assignment and licences entered into

 

All the details should be correctly recorded and ownership information must be accurate as well as renewal details which must be vigilantly maintained.

 

 

EXPLOITING THE SALE OF IP RIGHTS

 

 

To do this, you also need to protect confidential information which can comprise unregistered patents and other unregistrable intellectual property.

 

1. Critically, confidential information must be marked and treated as such. Information must be marked “commercial in confidence” or “confidential” or, at the very least, fall into a category of information which is identified by policy documents.
2. If it is necessary to have multiple people having access to the information, the number of copies of the information should be limited as much as possible or at least controlled and accessed to the information should be centrally logged at all times.
3. If it is impractical to centrally locate the information, mainstream security measures including the closed circuit or video monitoring of publicly accessible areas, computer passwords, visitor logs and badges and a policy of locking away all confidential information at the end of the day should be implemented. Ensure that out of date documents are shredded.
4. Ideally a confidentiality policy should be broadcasted to all employees and should be clear on the classes of information which are confidential, the treatment of that information and the restrictions which apply to the handling of that information.
5. The policy should be supported by suitable clauses in all the agreements of all employees. The clauses should identify clear sanctions for breach of confidentiality.
6. A confidentiality policy should be subject to an ongoing education program.
7. Both induction programs and interviews should include an element directed to the importance of confidential information in the business.
8. Finally, the risk of confidential information leakage escalates with the number of people in the business who have the information. If it is possible to compartmentalise the confidential information ensuring that no one person or small group of people has access to all aspects of the information, and therefore is not in the position to single handedly replicate the advantage, then the risk to the business even if a valued employee leaves, is minimised. This reportedly is how the Coca Cola Company maintains its secret recipe.
9. In order to build a confidential information portfolio, employees should be encouraged with the appropriate incentives to identify the confidential information as they would any patentable subject matter.
10.   It is true that a business cannot prevent any leakage of information stored in someone’s head and so information must be reduced to a written form and managed in a manner as described above. In this way, should there be a dispute, there is a much better chance of the court recognising the information as intellectual property of a business.

 

An audit of confidential information and regular reviews of a confidential invention inventory by specialist personnel will ensure that any confidential information which has not been identified as such will be available for proactive management.

 

 

COMMERCIALISING AN IP ASSET

 

Trademarks are now crucial in developing and protecting an exclusive image of the company’s. In addition, IP’s such as patents and designs are often anticipated as a main source of revenue for companies and it is not uncommon to hear about fledgling company cocooning a solitary IP asset, but commercializing an IP asset requires adequate cash flow to ensure the potential to create a revenue stream is realized. A multitude of steps are required including production launch and ramp up, marketing materials and program development as well as supply chain and development, sales channel development, training development and various types of support development.

 

 

Assignment

 

When the organization does not have the resources to adequately exploit the IP then the outright sale of the IP such as patents is the best course of action. The advantage of assigning is obvious. It is a way to access fast cash vital to the wind up of a company. In contrast, royalties from licensing can take time to trickle in and it could be years before the licence delivers any significant sum of money. A fast sale is also a good way to profit from an unused or underused resource and it is a way to ensure important IP assets such as patents are fully developed.

 

The disadvantages of assigning an IP are obvious. There is a total loss of the IP, it may be used by a competitor and there is a loss of a bargaining chip if other parts of the business are also to be sold. There is also the risk of selling something that might result in a lost opportunity in the sense that the IP asset may later prove to be vastly more valuable than it currently is.

 

Licensing

 

Another way of exploiting IP rights is by licensing them to external organizations. Licensing rights can be exclusive or non-exclusive and can give the licencee the right to use the copyright, patent, trademark or design for a specific purpose or a specific territory thereby leaving other territories and purposes available for other licencees. The owner of the rights usually gets payment in the form of royalties.

 

Licensing, such as licensing exclusive rights of a brand or design or through franchises, is also attractive as it allows exploitation of IP to be monitored and often the commercializing partner is expected to market, distribute and service the technology.

 

Licensing IP can provide a reasonable income stream for businesses depending on the term and it frees up cash and is a useful tool to develop business relationships and networks and to become established in an industry if the sale of the business is ultimately to be considered.

 

The disadvantage of course is the loss of exclusive control over the IP asset for the duration of the licence and the fact that originally created IP may be used to help the businesses of competitors.

 

Non-exploitation of existing IP can have consequences- for example a trademark becomes liable to be revoked where there has been no use of the mark for three years or five years after the first grant.